Re fall pushed diesel under-recoveries to Rs 9 plus: BPCL

There is no proposal from BPCL's side to revise diesel price hike from 50 paise to 75-80 paise, says RK Singh, CMD, BPCL. He says, once the diesel price was being raised by 50 paise per liter, under recoveries, which used to be Rs 13 per liter at some point of time came down to Rs 3.5-4 per liter. But because of rupee weakening in a very significant manner and price in the international market going up, under recoveries have now jumped to Rs 9 plus in excess of Rs 9 per liter.

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He told CNBC-TV18, this time around there is a case for upward revision of petrol price because of rupee depreciation and the hike in prices in international markets.
On money market rates going up, Singh says at the moment there is no problem, but it may be in the future. "Right now we have no issues, our borrowing is under control, our funding is tied up for our upcoming projects so I have no issue," he says. Below is the verbatim transcript of RK Singh's interview on CNBC-TV18 Q: There was a bit of a buzz in the market that companies are now pressing for revision in diesel to be increased from 50 paise to 75-80 paise. Is something like that on the table? Have you had any conversation with the ministry on that and is there an action which is likely on that?
A: No, there is no such proposal from our side. Whatever decision the government had taken earlier on, 50 paise/month that is what we have been doing. From our side there is no such proposal to change the amount from 50 paise to 70-80 paise. Q: You have been increasing 50 paisa on diesel for the past 6 months or so. Compared to January are your under-recoveries any less because it appears to have been overtaken by depreciation and by the rise in crude prices much more significantly. Compared to January are you any less in terms of under recoveries?
A: You are right, whatever effect it has that gets largely neutralized by the rupee depreciation and also the price increase in the international market. However, under recovery which used to be Rs 13 per liter at some point of time, it did come down to Rs 3.5-4 per liter at one time after we started doing the increase of 50 paisa per month. But again because of rupee weakening in a very significant manner this under recovery has now jumped to Rs 9 plus in excess of Rs 9 per liter. It has still not gone up to the level of Rs 12-13 which used to be earlier on but if the rupee situation has not worsened to the extent that it has then perhaps under recovery would have come down. Q: Hence if you have to keep pace with this level and before the year is out wipe out under recoveries at least on diesel to any significant extent, would you not have to raise prices a little faster may be by a rupee?
A: Let us understand one thing that diesel in the retail segment continues to be regulated and although the government has deregulated diesel in the bulk segment, but retail segment it continues to be regulated, therefore the government will have to take a view as to whether they want us to increase more to wipe out under recoveries sooner. Q: And there is no talk to that effect?
A: No. Q: There is a bit of chatter that may be oil marketing companies (OMCs) are now abusing the power of decontrol on petrol especially this fortnight. May be there wasn’t a case for petrol price hike because currency this fortnight had actually appreciated and even Brent crude prices were more or less the same. And a lot of people believe that you are financing some of the losses on kerosene and diesel via the freedom to raise petrol prices.
A: It is all rubbish because there is lack of understanding on the part of those who are saying that because it is not crude entirely that determines the price of products. There are two factors that ensures the price of the product. One is exchange rate and second is the price of the product in the international market. Normally speaking product price and crude price should move together in tandem either upward or downward, but this does not always happen.
Crude prices are determined by the stock market movement, speculators and things like that whereas product prices are quoted in international markets based on the supply-demand scenario. So by and large, traditionally speaking, it has been so, but it is not always the case that if crude prices go down, product prices will also go down. So what we do is when we determine the price of petrol every 15 days when we review it, we take the last 15 days average in exchange rate and last 15 days average on petrol price in the international market as quoted. And then we decide whether there is a case for upward revision or downward revision. This time it is upward revision because of the rupee depreciation and also because international price of petrol in the international market has moved up. Q: But why should international price of petrol be a benchmark? There used to be a price buildup of petrol, you import crude at a particular price then you refine it, then you transport it and then you sell it. Shouldn’t it be linked to your cost of production and price according?
A: No but they can determine the cost of production. Now we are importing crude, we are also benchmarking our product price that is what we are paying to the refiners. The product price based on the import parity you should know that import parity is priced, they call it trade parity now that is a price being paid to the refineries. Q: Can you tell us your under recoveries? You told us that for diesel it is Rs 9 plus, is there any under recovery at all on petrol?
A: No because petrol is not regulated. Q: So are you even or would you be a little over recovery?
A: No, we make normal margin. For any business that you do you have to earn some profit isn’t it. Don't call it over recovery. Q: Did you all go through any funding crunch because of the money market rates rising and yields going through the roof? Do you have a problem rolling over any of your money market instruments or your commercial paper?
A: Yes raising money is going to be difficult but as of now we have had no problem. But as the situation looks like today we might see this kind of a problem in future but right now we have no issues, our borrowing is under control, our funding is tied up for our upcoming projects so I have no issue.